Good day, ladies and gentlemen, and welcome to the Q4 2018 James River Group Holdings Ltd. Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Kevin Copeland, Head of Investor Relations. Sir, you may begin.

Thank you, Jewel. Good morning, everyone, and welcome to the James River Group fourth Quarter 2018 Earnings Conference Call. During the call, we will be making forward-looking statements. These statements are based on current beliefs, intentions, expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. For a discussion of such risks and uncertainties, please see the cautionary language regarding forward-looking statements in yesterday's earnings release, and the Risk Factors section of our most recent Form 10-K, Form 10-Qs and other reports and filings we make with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. I will now turn the call over to Bob Myron, President and Chief Executive Officer of James River Group.

Good morning everyone and thank you for joining our conference call today. This is Bob Myron and with me are Sarah Doran, our CFO; and Kevin Copeland, our CIO and Head of Investor Relations. Sarah and I will make a few comments to give you some additional color on the quarter and the year and then we look forward to getting to your questions. The earnings power of our franchises are very strong and I see them improving in the future. For the full year 2018 we had an outstanding 14.8% operating return on tangible equity which is the highest our franchise has achieved in the last 12 years. And we achieved this with fourth quarter results that were marginally below our expectations, both with respect to underwriting profits as well as investment income from our private investments. We achieved these results for the year through strong growth and good underwriting by our segment teams, booking conservative accident year loss picks continued expense management across our group and great capital management. The last part is something that we haven’t commented on a lot in the past, so let me do so now. We have a compelling net premium to equity ratio along with prudent and efficient capitalization. We manage the company this way on purpose in order to deliver the highest ROTE we can to shareholders while at the same time meeting the expectations of our rating agency, regulators and policy holders. We also have a compelling dividend yield which approximates 3% which outpaces many of our specialty peers and the P&C marketplace as a whole. While our ROTE is high, it has also been consistent. We've averaged a 13.0% ROTE over the four years which we have been public and the standard deviation around this result has been [indiscernible].…

Thanks Bob and good morning everyone. For the fourth quarter of 2018 we made underwriting profits of $7.1 million, generated operating profits of $17.1 million and our reporting net income of $11.6 million. For the full year our operating profit of $70.6 million was 49% higher than it was for 2017 and the second highest it has been in our company's history. Our expense ratio of 21.3% is an improvement of 1.2 points from the third quarter and came in at 23% for the year, the best annual results in our company's history and a 10 point advantage to our peers mean results. We believe our annual expense ratio of 23% positions us well for attractive returns. We continue to enjoy strong cash flow from our businesses as operating cash flow for the full year was $290 million as compared to $208 million last year and $154 million in 2016. Our investment performance has been a key bottom line contributor as we have grown cash flow and generated above average returns, in particular from a small subset of assets outside of the core fixes income strategy. This subset consists largely of our renewable energy assets as well as select limited partnerships we've invested in which have credits and equity attributes. It represents about $72 million of value or less than 5% of our total investment portfolio. Unfortunately, December's market volatility impacted the portfolio this quarter and to note we did book the portfolio through the full end of the year. We've a loss in two discrete investments which pushed us off pace from where we've been tracking on net investment income for the year. This year we grew tangible equity per share almost 10% including our common dividend which currently has at above sector yield of approximately 3% as Bob noted. Over the course of the quarter, our tangible book value per share grew from $15.95 to $16.34complementary to 12% or better ROTE target we're focused on growing tangible book value per share. We ended the quarter with tangible shareholders equity including our common dividend of $526.1 million, an increase over the $474.5 million at the end of 2017. Operating leverage are trailing 12 months at premiums written to tangible equity was approximately 1.5 to 1. We continue to see attractive opportunities for organic growth and reinvestment in our business and look forward to continue to put our capital to work at is very attractive returns for our shareholders. And finally our taxes, our effective tax rate for the year was 9.9%. While there are many points of impact to our tax rate we continue to believe that going forward our tax rate will be similar to historical averages, vary a few points in excess of where it came in on this year. So with that, let me turn it back to Bob.

Thank you, Sarah. Lastly, I would like to thank all of our 750 employees for their hard work in 2018 in producing these strong results and we look forward to continued strength in 2019. Operator, that concludes our prepared remarks, would you please open the line for questions?

Thank you. [Operator Instructions] Our first question comes from Randy Binner with B. Riley FBR. Your line is now open.

Hey, good morning, thank you. I have a question on reserves and you know it has to do with the 2017 accident year where there was still a good amount of growth. Can you outline why there is the level of confidence there versus the 2016 accident year that's had considerable amount of reserves development?

Yes Randy, this is Bob. I think it is the same things that we've talked to or talked about in the past. You know, a lot of the development in 2016 came from UM and UIM related exposures and a lot of it came from the particular state and in terms of the 2017 renewal we took rate and underwriting actions in particular with respect to share that significantly mitigated the causes of the development from 2016. So it's really the same thing that we've communicated in the past and those underwriting actions have borne out well for us.

Alright, and then just one related question to the Commercial Auto account, in your opening remarks you said post the renewal of the contract going forward, do you expect a similar amount of premium, but did you say specifically that they'll be like last miles driven and did you quantify that?

Yes, I said that the mileage driven will be approximate, the number of miles will be approximately 82% of what we had in the expiring contract which is ending this month.

But that's offset by what, like expanded coverage of the liability limit higher or with offset that just price increase?

Well, I'll just go back to it. It's what I said in the prepared remarks it's really geographic mix as well as the amount of net line I guess you would say that we take and that's bounced around through the years in terms of the share of the risk that we have and so it's really from those two things.

All right, thank you.

Thank you. And our next question comes from Mark Hughes with SunTrust. Your line is now open.

Thank you very much. Good morning. What do you think about the accident year loss like for 2019? Presumably you've seen good growth in your core business. You're getting better pricing. It seems like your mix is going to shift more in favor of that core E&S in 2019. When we put all that together should we think current accident year may improve a bit?

I think the way that I think about that Mark is, we've said consistently through 2018 that we are trying to put a pretty accident year picks and that’s the way that we'll continue to go into 2019 in core. I think we've got a great growth opportunity and strong pricing there, but we want to we want to book high, very conservative accident year picks out of the box. So I wouldn't expect to see a big improvement over that versus 2018 right away.

At least the logic of those moving parts that sounds reasonable.

The other pieces of what you were saying is reasonable based on mix et cetera, but I'm just kind of addressing the accident year loss pick in particular.

Understood. For reinsurance your - I think your outlook perhaps from here for written premium is steady when we think about profitability within that line, have you called that to retain the more profitable business and so you may see some improvement or should we sort of stick with the kind of high 90s combined ratio?

Yes. So Mark this is Bob. The team here, I'll lead with this, the team here has done a really good job of calling the book and reducing it pretty significantly and one of the focuses there of course was to focus on the most profitable accounts since we've been doing this business since 2008 and so I think we are focused on the more profitable business and we're able to retain that obviously with a lower and premium number, there's a little bit of an offset from a scale perspective right. But I don't, so we're not really focused on growing that business from initially and as you know we don't really give specific top line guidance. But so, we're basically would expect that to be plus or minus flat in terms of 2019 and where that business ultimately gets priced in terms of the loss ratio and then the sliding scale commission and then when you layer on brokerage and then overhead expenses and the like, it basically does come up to that high 90s number.

Okay. And then one final question, in the Specialty Admitted your current exited year number popped up into the high 70s. It had been running kind of mid upper 60s. So pretty good loss environment I think as you described it. Any comment there on why you saw that move up, does it mean anything for 2019?

I would say it really doesn't Mark. It's a bit of an artificial impact of how a book loss and loss adjustment expenses in the comp business in particular and that's something we're working on addressing through our somewhat formulaic approach there. But we expect to see continued good experience out of that book as we have through 2018.

Thank you very much.

Thank you for the questions.

Thank you. And our next question comes from Bijan Moazami with Compass Point Research. Your line is now open.

Good morning everyone. I just want to understand it very carefully is that in terms of the kind of coverages that you guys are providing starting March 1 as compared to last year, in particular if your miles driven is down by 18%, does it mean that you're getting 18% rate increase in order to have a flat premium volume growth from that account? And if you're getting 18% rate increase from that account to remain flat, are you providing something that you didn't provide last year?

No, just to be clear, don't make the assumption that's because of rate changes, Bijan. And again, I would go back to what I said in the prepared remarks it's really driven by geographic mix changes as well as the coverage that we're providing right. So whether that's different limits or the share of the limits that we're taking is really the thing that's driving that right, it's not a rate driven change. But I would reiterate that we're very happy with the pricing that we're receiving on this renewal.

Just to understand better that means that you are getting less miles in a low rates space and more miles in higher rates.

Well it could be as a result of that as well as what, we haven't disclosed before in terms of the share of the risk that we actually take. But through the years there have been changes in that share of the risk that we actually assume from a liability perspective and so, but let me get back to I think the highest level part of your questions in terms of the coverage is that we provide, in terms of the coverage we are providing physical damage coverage for the drivers as well as liability coverage for the drivers. And the physical damage piece of it is something that we've never taken risk on and we've talked about that before. So we're basically just handling the claims for - there for a fee, so that component of the coverage. And then on the liability side we've - through the years we've taken various shares of the liability risk in this contract. That sort of moved up and down through the years.

Great. Also on the Specialty Admitted business how big the fronting business can become and also has the kind of fees that you can charge this year as compared to last year and finally how much capital the fronting takes?

Yes, that's a great question. So the first thing I would say which is similar to what we've said in the past is, we've gone from zero to about $350 million plus or minus of fronted premium here in the last six years. However as Sarah likes to point out this is, it is lumpy. The deals can - you can get no new deals signed in a quarter or you could get a couple or three new deals signed in a quarter and a year could be some material number above that as well. And so, we have a robust pipeline. I expect that we will continue to grow this fronting business. We would like it to get meaningfully larger than it is. I think we've made good progress, but we do want to continue to grow it because we do see it as you point out as it gets pretty capital light. It's a, it's really a credit business where you have to manage your credit risk carefully because of the heavy amount of reinsurance that you're buying and we generally are reinsuring 90% or more of any one of these deals. So that's important. The capital charges for the business really come through reinsurance recoverable, whether you look at that from a regulatory or rating agency perspective, whereas if you have a lot of retained risk 90% of your capital charges are going to come from net written premiums or reserves. So it is meaningfully wider from a capital perspective. And I would say to your last question around pricing, we are endeavoring to get four to six points of gross front fee on any one of these deals. And that - those are compelling numbers and it's generally where the market is and I would say that we're not really looking. We're not really looking at stuff that has a gross fee income number that's lower than that and unless it's a deal that has really large scale or it’s a really large transaction and as we model it we feel like something less than that could still give us a very compelling return on a lot of risk on allocated or return on allocated capital basis and how much it impacts our infrastructure. Obviously you can spread a larger deal all over the organization and just for example the number of people needed to administer a large deal might be the same number of people that would be needed to administer a smaller deal. Right? But we're generally targeting fees in that level and they are achievable in the marketplace.

One last item, are you guys expanding your admitted licenses to be able to do more sea business or fronting business?

Yes, but I would say that we are always looking to expand licensure and filings and having perhaps multiple filings on multiple companies and also are continuing to new work on E&S licensure as well in this respect. But we do have 50 states. We have broad licensure across the United States. It's more of a by exception situation, where we don't have it than where we do.

We have licensure in almost every state, both on an E&S and admitted perspective right now for that business, Bijan. So we've got full capabilities and looking to take advantage of that.

Thank you.

Thank you. And our next question comes from Meyer Shields with KBW. Your line is now open.

Great, thanks Good morning all. Bob, I just apologize for counting on the payments you burst, should we expect fees within the Excess and Surplus line segment to come down if you're going to be retaining some of the physical damage closure.

I don't think we said that we were necessarily there Meyer on that point, but I would not, I would expect the fees to continue to decrease. Just given the same dynamic that we talked about at the beginning of last year that we are not accounting for the business from a fee perspective as we were in say 2016 and even 2017 and it is really a change in accounting and that impact goes through premium now and not through fees and there's a bit of a lag in the way that's decreased. But you would continue to expect the fee income in E&S to come down materially over the course of this year and not to be missed, that's to be represented within the premium income instead.

Okay, now that's helpful. That's suffices thanks. I was hoping you comment a little bit on, I think there's some seasonality in the core E&S rate increases, really from last fourth quarter this fourth quarter a little lag in between, were this quarter's rate increases a function of the lines of business that are renewing now?

Yes, it definitely can be Meyer and I think that all, let me lead with this. I mean, we continue to actively seek rate increases on the book of business overall on renewals and obviously we feel very good about pricing of new as well. I would say that in terms of where we did get rate increases, it was pretty broad. It was across I think eight of twelve or the divisions within excess and surplus lines. It can be lumpy because of certain renewals at certain dates sort to speak, Excess Casualty for example had substantial rate increases in the fourth quarter because some of the business that's renewed there. But we also got meaningful rate increases in General Casualty and environmental and several of the other divisions as well. So yes, I think but you're hitting on the point which is why it does, it did bounce around during the course of the year. Sometimes if you don't have as many renewals in a division that where the market is harder, you won't see as much in the way of rate increases on a blended overall basis. Now I think a perfect example of that as Allied Healthcare, we had some - quite a bit of new and renewal business that has a tendency to be Q1 dominated. You know it's sort of January, because these have the tendency to be larger accounts and they're more calendar year oriented in terms of when they renew. And so, if you remember we had a large renewal rate increase there in that division, but throughout the course of the year there's just been smaller renewal premiums right. So that's sort of weighs in less, so I guess that's a long way of saying yes to your question.

Okay, now that's helpful I guess it has been any help. And then final question again within Excess & Surplus outside of the Commercial Auto was there any favorable or unfavorable reserves elements within core?

No, there was not. We just had the $5.8 million of adverse development from the 2016 accident year in Commercial Auto.

Okay. Thank you so much.

Thank you. And our next question comes from Brian Meredith with UBS. Your line is now open.

Hey, good morning guys. This is the Seth Rosenberg stepping in for Brian. So back to Randy's question and the '16 versus '17 Commercial Auto, Bob I think you said certainly pricing went up in the states as the year renewed, but you also mentioned underwriting. I'm just trying to understand behaviorally why these two years might act different whether r changes maybe in the terms or policy language or are you starting to see a benefit from or you see more cameras in vehicles these days?

Well, I think what we - just to repeat what we've said in the past, there was an overall rate increase for that entire renewal and then there was - we started to do state specific pricing and then some of the shares were varied by state as well in terms of that year. And Florida being the state that had been the most difficult, so we, like you know that was priced separately and there was a separate share that we took there, but then we no longer had Florida for the 2018 really that's an important thing to mention as well.

Okay, understood. But in terms of the terms and how the policy is structured what that - the limits that didn't change between the two years?

Well, it does because of the share that we take, I guess in terms of our net limit that we're retaining.

Okay understood. That's helpful. Thank you. And then maybe, broader picture on Commercial Auto a number of companies that had adverse development this quarter, you hear some talk in the marketplace that maybe it's impacting more the trucking and heavy equipment type vehicles. There's more train [ph] involvement, trains going after you know where they see higher limits. Are you guys seeing any of that in your book?

Yes, I wouldn't say that we really are. It's - I think that this is, you know this account and this business is reason [Audio Gap] So would you mind repeating the question?

Sure, so just kind of broad picture you had a number of companies this quarter talking about, how we're seeing some reserve charges and higher loss takes on Commercial Auto. Some companies have spoken about more attorney involvement particularly focused on more the trucking space where lawyers can target higher limits, so I’m just curious in your book and the dynamics you have do you see any of that?

Yes, I wouldn’t say that we necessarily do. I think this book is reasonably different than more traditional taxi cab or trucking related commercial auto accounts. I don’t really think that it’s necessarily being driven by the same things that you are hearing from other people. I think it’s really just where the contract in time was priced and losses and exposure coming out of uninsured and uninsured motors and so we took some meaningful corrective actions on that in 2017 and then again in 2018 and so I think that’s really the story here.

Okay, great thanks. And then one last one shifting gears, so no special dividends, I know you guys have previously spoken about sort of the deploy versus return strategy. Am I thinking about the right way that sort of that the 12% ROTE that you’re targeting this year that’s sort of the right threshold to think about in terms of how you’re thinking about deploying capital versus returning it?

I think, sorry this is Sarah Doran. I think what we’re - our guidance is 12% or better return on intangible equity just to highlight that for a second and we pay an above average as we kind of commented on in the call ordinary common dividend at that 3% level. We feel like that is a various effective capital management strategy for us and I think we said consistently through 2018 is we had great opportunity to put our capital to work given the great environment what we’re seeing especially in core [indiscernible] and other places. We’d like to continue to do that rather than focus on the special dividend especially if we're already, we feel like we're effectively and efficiently managing capital through the ordinary.

And I just want to make one point clear too is that when we had normally declared a dividend was a special dividend would have been when we released our third quarter results.

Yes, that's a good point and this quarter ago, yes. We don’t do that in the fourth quarter, yep.

Got it, okay thank you guys very much.

Thank you. [Operator Instructions] Our next question will be from Mark Hughes of SunTrust. Your line is now open.

Thank you. My questions have been answered. Thank you.

Thank you.

All right, thank you everyone for joining our conference call today. We appreciate your participation. [Indiscernible] for the technical difficulties and we will look forward to talking you in early May. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone have a great day.